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Bear Call Spread

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Purpose Of Bear Call Spread


1. To profit from a falling stock
2. To be the "banker" in a Bull Call Spread transaction
3. To make a slight profit even if the stock remains stagnant



Expectations Of Bear Call Spread


Down or Stagnant



Type Of Spread


Credit Spread



How To Use Bear Call Spread?


Buy Out Of The Money (OTM) Call Options and simultaneously Sell the same amount of At The Money (ATM) Call Options of the same expiration month.

Buy OTM Call + Sell ATM Call 		Bear Call Spread Risk Graph Learn How To Read This Chart



Profit Potential of Bear Call Spread :


Maximum profit occurs when stock drops below breakeven point.

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Profit Calculation of Bear Call Spread


Maximum Return = Net Credit



Risk / Reward of Bear Call Spread


Upside Maximum Profit: Limited

Maximum Loss: Limited



Break Even Point of Bear Call Spread


BEP: Lower Strike + Net credit

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Advantages Of Bear Call Spread



  • Loss is limited if the underlying financial instrument rises instead of falls.

  • If the underlying instrument fails to drop beyond the strike price of the out of the money short call option, the profit yield will be greater than just buying put options.

  • Able to profit even when the underlying asset remains completely stagnant.

  • Lower risk than simply writing naked call options as maximum downside is limited by the long ATM/OTM call option.



    Disadvantages Of Bear Call Spread



  • There will be more commissions involved than simply buying put options or just selling naked call options.

  • There will be no more profits possible if the underlying asset drops beyond the strike price of the short call option.

  • Because it is a credit spread, there is a margin requirement in order to put on the position.

  • As long as the short call options remain in the money, there is a possibility of it being assigned. You may then have to purchase the underlying stock to meet the short call obligation.


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